PNB fraud

Punjab National Bank's Brady House branch in Mumbai fraudulently issued Letters of Undertaking to overseas branches in favor of Nirav Modi.

Lapses at various levels:

• At the most basic level, it happened due to delinquent behavior of a few employees of PNB .
• Delinking of SWIFT and Core Banking Solution.
• Failure of bank management as the staffs were not rotated every 3 years as a norm for risk management.
• Failure of Audit committees.
• Partly a failure of the regulatory body the RBI as all LOUs have to be reported to the RBI on a quarterly basis. There is also a conflict of interest in having a central banker sitting on the board of a bank that RBI regulates.
• To an extent, Govt is responsible too as a majority stakeholder in PNB a PSB.

Impact:

• This fraud has been unearthed at a time when the PSBs are reeling under a pile of stressed assets of about Rs. 10 lakh crore. In an election year, it would now be politically difficult to press forward with the recapitalization plan of PSBs using taxpayer's money.
• The market sentiments have been hit. The shares of PNB have fallen. The credit off take from PSBs may suffer too. 
• In the long run, these frauds erode the confidence of the public in the banking sector.

Solutions:

• Bring wilful defaulters to book as soon as possible to create a deterrence.
• Improve corporate governance in private companies.
• Privatization of a few PSBs and consolidation of the rest can be considered to bring in professional management and to curb political interference in the functioning of banks.

India-Iran Relations

Recently, the President of Iran, Hassan Rouhani was on a three-day visit to India. Connectivity is the main pillar of India-Iran relations. The visit saw the Chahbahar Port getting operationalised. The port would give India access to landlocked Afghanistan and the energy rich Central Asia region. Located close to Gwadar port, it would enable India to offset Chinese presence in the Arabian Sea.

India meets 80 percent of her oil requirements through imports. Good relations with Iran is important for our energy security and for safeguarding the interests of Indian diaspora in the form of construction workers working in West Asia.
During the visit there was an agreement over rupee-rial arrangement using which Indian businessmen can invest in Iran in Rupees. This is an attempt to circumvent the possibility of international sanctions being reinstated if the Iran nuclear deal is renegotiated.
Another area of cooperation is the joint fight against radicalization and terror.
India has a significant Parsi population thus, people to people contacts is another dimension of India-Iran relations.

Challenges:
Balancing relations with Saudi Arabia and Iran at the same time.
Similarly with Israel.